Financial Administration of Australia Government - Essay Example

Running head: REVIEW OF FINANCIAL ADMINISTRATION REVIEW OF FINANCIAL ADMINISTRATION AND BUDGETING SYSTEM, THE IMPACT OF THE SYSTEM AND WAYS OF IMPROVEMENT By student’s name University’s name Professor’s name City, State Date Words: 1520 Introduction This paper critically reviews the financial administration in general and budgeting system in particular, of the financial department of Australia government. It also assesses the impact of the system on the management decision making and discusses the appropriate ways in which the budgeting system and financial administration generally could be improved. Critical review of the financial administration in general Generally, the Australian financial department is one of the important departments in the management of the Australian Government. First, I reviewed the financial controls of the department and came to identify that there are issues around the financial control, particularly the bank reconciliation and capacity and skill level in financial reporting. The 2013 financial statements were not submitted in time (Mulgan, 2013). The finance director informed me that this was due to the late implementation of the regulatory assurance approach and the way the new external auditor was conducting their work with rigor. During the review, the management issued me with the draft of the Price Water-house Coopers management letter in relation to the year ended 31st December 2013, which has twenty recommendations to the financial administration. It points out a number of areas in financial administration within the department that needs improvement. These include the general level of skills, capacity and competence reporting of the financial across the department is not at the level they should be in light with the government expansion and the increasing complexity in reporting of the financial statements (Parliament of Australia, 2007). Close observation of the financial statements of the department reveals that the department has not demonstrated a consistent and disciplined approach to bank reconciliation. This was noted in the external auditor’s management letter and acknowledged by the department. The other area of the review is the supplier and the professional services that are carried out by the department. It was not practicable for the review to look at the entire procurement practices with the department and all those for the government, but focused on the issues in board minutes. The board minutes indicated that there had been procedural irregularities in respect to certain contracts of the department and the government lets and that the extent of irregularities was a notch higher in the department (Business Council of Australia, 2008). My procedural review into the discrepancies of the procurement procedures also revealed so. I came to realize that there were payments with no purchase order. This shows a lack of management controls over the documents or safekeeping of documents. Although the finance director provided me with the numerical analysis that supported the claims, the report was merely verbal. In my review to the department, only three-quarter was spent on consultancy fees and the remaining amount could not be supported by any document. I also looked at the expenses of the department for the last three financial years and observed that there is a low-level non-compliance with the approved policy of the government and the department (Parliament of Australia, 2007). In addition, I observed a lack of capacities by the finance team to apply consistently the standards of scrutiny. There was also extravagant use of the public funds for annual strategy conference, which included pre-event meals and hire of rooms before the event. When expenditure limits specified within the expenses policy are exceeded approval should be sought in advance. However, in practice this is only done retrospectively; I also identified breaches of department expenses policies indicating an apparent lack of verifying of expenses claims at the point of authorization within the department (Laurie, 2008). Overpayments have been identified through error and incorrect processing of the expenses incurred. These have led to a high amount of expenses in the department. Review of the budgeting system in particular The budgeting system of the financial department starts with the budget cabinet submission (Parliament of Australia, 2007). This comes as the treasurer and the Minister of the Finance in the Finance Department providing a submission to the Cabinet on the timetable on the forth-coming budget. In my review, it is clear there need to be changes in the budgeting system because of the changes in the government’s operations and the increased level of technology that enables the department to get required information in good time. Second, the prime minister traditionally writes to the portfolio ministers asking them the outline of their proposals for their new initiatives. This stage is called strategic budget committee. Initially, there were neither monetary levels that were set for the new policy priorities in these letters nor any indication of any overall policy indication. Therefore, in the review I have notified that the new priorities were not set for the departments in the government budgeting. Thereafter, Ministers deliver their budget proposals to the prime minister. These proposals are then reviewed by officials from three agencies that are; the department of the prime minister and cabinet, the treasury and the department of finance, also known as the trilateral rule. Each of the three central agencies will offer its views on whether an individual submission should be accepted for further development or rejected (Parliament of Australia, 2007). This has lead to the competition of the proposals from different departments or ministries of the government, which has led to bias in the approval of some ministries’ proposals more so due to political reasons. The third stage after the strategic committee is the expenditure review committee. Portfolio ministers prepare their respective portfolio budget documents. In principle, there should be one submission per portfolio. The submissions must contain complete costing of the proposal and the costings must be agreed with the department of finance. In this stage, I came to realize that there might be serious problems relating to the issues of formula-based programs on the needed operating costs in order to manage respective programs, which are mostly of a political nature. Fourth is the budget cabinet whereby the decision by the review expenditure committee is discussed by the full cabinet known as the budget cabinet. Lastly, the ad hoc revenue committee, at this stage the treasurer discusses the latest economic assumptions and revenue estimates. Hunting License is the last stage in the budgeting system of the financial department of the Australian Government. It is where the revenue committee issues hunting license to senior ministers to settle final details of the budget. In my review, this stage should be used to decide on the major issues such as deciding on tax expenditure and tax cuts. Impact of the budgeting system on management decisions First, the department of finance and deregulation is impacted positively as it is responsible for decision making in matters that require government guidance on performance management policies related to budget funded bodies and requirement of statutory authorities and companies (Kelly, 2007). In addition, the finance department has a responsibility of providing advice to the government on matters of government expenditure priorities, and, therefore, the system impact positively on this responsibility of the department. The budgeting system affects the department negatively when there is a need for change in the budget and medium-term estimates. The department cannot do this, as it has to go through a systematic process. Finance is responsible for developing policies on the review of the expenditure initiatives, individual departments and agencies, and; therefore, the budgeting system gives the department a good avenue to understand fully the need of these other departments and agencies. The finance department also has the responsibility of monitoring the performance of these government departments and agencies and undertaking evaluation of their programs. Therefore, the system assists the finance department to understand the budget of these other departments and agencies. How the budgeting system and financial administration could be improved. Lastly, the financial department needs to improve its financial team so that they are competent, skilled, experienced, and knowledgeable on matters of financial reporting and budgeting (Laurie, 2008). This can be done through introduction of training and induction programs within the department. Further, the department needs to improve on its policy adherence. As this is what controls both the performance in the financial administration and the formulation of the budgets of the Ministries or the government as a whole. There is also need to improve on safeguarding of the financial documents, as these are the crucial supporting documents for any financial transactions of the organization or department or of the government. Most of the budgeting are expenditure directed, and; therefore, the department needs to consider and improve the revenue directed budgeting to generate more revenue for the government and the department. The system must force simultaneous resource allocation decisions and not sequential decisions. Decisions are always sequential in autocratic departments and governments where the decision maker gets the funds fast and then the rest last. The budgeting system should allocate resources simultaneously to different departments of the government. Conclusion In conclusion, the review of the financial administration and budgeting system shows that there is a need for improvement in these areas in the financial department. In addition, financial department is impacted positively by the budget system since it is responsible for decision making on various matters. Finally, as a recommendation for improvement the finance department needs to improve its financial team so that they are competent, skilled, experienced, and knowledgeable on matters of financial reporting and budgeting. References Australian Government, 2007, Reducing Red Tape: Dispelling Some Myths in Australian Government Administration, Management Advisory Committee, Canberra. Business Council of Australia, 2008, BCA Budget Submission 2008/09: Budgeting for Prosperity, February, Canberra. Kelly, J, 2007, “An End to Parliamentary Oversight? The Impact of Results-Based Appropriations in Three Australian Governments”, prepared for the 19th annual conference of the Association of Budgeting and Financial Management, October, Washington DC. Laurie, K. and J. McDonald, 2008, A Perspective on Trends in Australian Government Spending. Economic Roundup, Summer, The Treasury, Canberra Mulgan, R, 2013, The Australian Senate as a ‘House of Review, Australian Journal of Political Science, 31(2), pp. 191-204. Parliament of Australia, 2007, “The Commonwealth Budget: Process and Presentation”, January, Canberra. Parliament of Australia, 2007, Transparency and Accountability of Commonwealth Public Funding and Expenditure, report by the Senate Finance and Public Administration Committee, March, Canberra. Read More